Pace Quickens in Cash Management

The growth rate of revenues from cash management services at the nation's top 300 banks rose slightly in 1990, according to a study by Ernst & Young. The pickup reversed a slackening in revenue expansion that began in 1986.

Money-center banks, which in previous years have pulled down the average for all banks in the research, made the biggest improvement, while superregionals continued to post stronger-than-average growth rates according to the report published by the consulting and accounting firm.

Topics Are Far-Ranging

The study surveyed 134 banks and holding companies and five nonbank cash management vendors on revenue, volume, features, and pricing issues.

Growth of revenue from cash management at the top 300 U.S. banks in 1990 by 8.5% over the level in the year-earlier period, to $5.5. billion.

However, competition remains stiff, and growth rates are expected to hover around 8% for this year, Ernst & Young officials said.

Strategies Succeeding

The study shows that banks are beginning to reap benefits from strategies aimed at coping with an increasingly competitive market, said Susan Skerritt Gleason, a consultant with the firm. She cited bank tactics such as product profitability studies, enhanced customer service, and more focused marketing as contributing to last year's stronger showing.

The study indicated that, while price discounting still occurs, banks are placing more emphasis on customer service and less on predatory pricing.

"This has become an extremely focused business, and there's been a leveling off of the price warfare," said John R. Rodelli of Continental Bank, Chicago.

In 1990, the top 20 banks posted a 5.5% growth rate in total revenues, compared with 1989's 3.9% increase. Ernst & Young rates the top 20 institutions according to asset size, not the size of their cash management business.

Increased revenue growth at the top 20 banks was particularly significant because these banks account for 38% of industry revenues, Ms. Gleason said.

Continued Strength

Midsize and superregional banks continued to post strong growth of about 10% in 1990. However, growth at the superregionals was down from the 12% rates of 1988 and 1989. These banks, which rank 21 through 100 in asset size, generate 44% of total industry revenues.

Midsize corporations represent an increasingly important share of the total industry's revenues, the study found. The middle market contributed 37% of industry revenues in 1990, up from 35% in 1989.

In contrast, large corporations accounted for 44% of revenues in 1990, down from 47% in 1989.

"We see continued growth in the middle market, with most banks trying to leverage the products and services developed on the corporate side," said Peter J. Stein, first vice president at NBD Bancorp, Detroit.

Volume Up, Prices Down

Revenues last year from controlled disbursements grew as a result of a 9% increase in processing volume; pricing actually declined by 7%.

The research also found that large banks continue to hire third parties or sell outright their retail lockbox services. Only 79% of the top 20 banks said they had internal retail lockbox operations.

Revenues from electronic payment products, such as automated clearing house transfers, experienced the highest growth rate among cash management products. ACH revenue grew 19% in 1990, up from 16% in 1989. But ACH revenue still accounted for only 3% of total revenue.

The study also showed that banks increasingly hope to distinguish their offerings through customer service and quality measurements.

There was a 6% increase in the number of banks that provide statistics on quality measurements, such as the rate of processing errors in a given month.

And banks shifted more personnel to the customer service area. In 1990, 28% of cash management personnel were assigned to customer service, up from 24% in 1989.

"For certain types of cash management, we've seen a flight to quality, relative to the quality of banks assets and quality of operations," said Mr. Stein of NBD.

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